solutions to purchase order hurdles

5 Simple Solutions to Major Purchase Order Hurdles for South African SMMEs

Navigating the complex world of purchase orders (POs) can be daunting for South African small, medium, and micro enterprises (SMMEs). Just as you begin to think you can start celebrating after winning the bid for that order or tender, reality sets in when you look at the extensive list of what’s required to actually deliver.

 

SMMEs need to overcome several hurdles in the purchase order process, from securing PO funding to ensuring effective supply chain management. But don’t worry—we’ve got you covered! In this blog post, we’ll explore practical solutions to your significant purchase order challenges and how tools like purchase order financing and invoice discounting can help your business thrive.

Understanding Purchase Orders

Before we dive into the solutions, let’s quickly recap what a purchase order (PO) is. A purchase order is a legally binding document sent from an end-buyer (the purchaser – the entity that issues a tender) to a supplier detailing the products or services the buyer wants to purchase. It includes information like quantities, prices, delivery dates and other important terms. The purchase order serves as a legal agreement between the parties, ensuring both sides are clear on the transaction details.

Common PO Hurdles and Their Solutions

1) Securing Purchase Order (PO) Funding

One of the most significant hurdles for SMMEs is securing the necessary funds to fulfil large orders. Because almost all purchase orders require upfront expenditure, this hurdle is one that has to be overcome very early on in the purchase order process. Solution: Purchase order financing is a great solution for SMMEs. It allows businesses to finance the production or procurement of goods needed to fulfil a purchase order. Partnering with specialised PO funding companies, like Sourcefin, will allow you tackle the order with all necessary funding from the get-go. Purchase order financiers pay your suppliers directly, allowing you to fulfil the order without straining your cash flow. Once the order is delivered and the invoice is paid, you settle the outstanding amount with them.

2) Securing Reliable, Affordable Suppliers 

One of the key factors that can determine the success of your business is finding reliable and affordable suppliers. These suppliers can ensure timely delivery, guarantee quality, and even offer better deals, leading to higher profit margins. However, finding such suppliers can be a challenge, especially for SMMEs. Solution: The way to go is to diversify your supplier database by building relationships with multiple suppliers. But we are aware that’s not always possible. Sourcefin gives all clients access to our extensive database of vetted suppliers, both local and international. This minimises all supplier-related risks.

3) Limited Capacity

It can be very tempting to take on more orders than your capacity allows but overcommitting to purchase orders beyond your capacity risks missed deadlines, strained resources, and even reputational damage. In the same breath, to grow your business, you need to gain experience – and delivering on a big (and achievable) order is usually the way to do it. Solution: Partner with a funder that does more than just supply funding. Sourcefin offers end-to-end purchase order support. From sourcing and logistical support to purchase order validation and verification, Sourcefin goes on the “purchase order” journey with you, allowing you to dream bigger and remain confident that you will deliver.

4) Longer End-Buyer Payment terms

Most end-buyers, especially state-owned entities, have 30, 60 or 90-day payment terms. Extended payment terms from end-buyers can strain cash flow, affecting operations and growth opportunities. Solution: By negotiating favourable payment terms upfront, you’ll avoid pausing business operations while waiting for invoices to be paid. But when that’s impossible, consider invoice discounting to unlock immediate cash flow from outstanding invoices. This allows you to maintain a steady cash flow while waiting for your customers to pay their invoices. With invoice discounting from Sourcefin, you can access up to 75% of the invoice value upfront, giving you the liquidity to manage day-to-day operations.

5) Lack of Professional Guidance & Negotiation Power

There are a number of components of purchase orders that may be tricky to navigate for SMMEs or businesses that are new to the purchase order game. For example, it’s more difficult for SMMEs to negotiate more favourable terms with stakeholders. Solution: Partner with a specialised PO financier. Sourcefin’s current offering of 2 products (invoice discounting and purchase order funding) allows us to tailor our funding solutions to each client due to our deep understanding of the South African market and regulatory/compliance environment. Our full-service solution (from sourcing to logistics and project management) goes beyond just supplying funding, as most funding houses do.

Navigating the world of purchase orders doesn’t have to be overwhelming.

By leveraging purchase order funding, invoice discounting, and partnering with financiers like Sourcefin, South African SMMEs can overcome the major hurdles and focus on growing their business. Remember, the right financial partner can make all the difference, providing the resources you need to fulfil orders and maintain a healthy cash flow. So, take control of your purchase order challenges today and partner with Sourcefin to set your business on the path to success!

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